Thorpedo Ltd Reported a Return on Assets of 15% for the Year

question 21

Multiple Choice

Thorpedo Ltd reported a return on assets of 15% for the year ending 31 December. It also acquired a licence for cash by paying $1m at the end of the year ending 31 December. This licence is expected to generate net profits of $0.1m per year and the asset is not amortised. Assuming the results for the next financial year mirror the year ending 31 December and the licence did increase net profit by $0.1m. What is the effect on Thorpedo Ltd's return on assets for this subsequent financial year?

• A) A decrease
• B) An increase
• C) No change
• D) Cannot be determined

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Definitions:

Break-even Sales

Break-even sales refer to the amount of revenue a business must generate to cover all its fixed and variable costs, without making a profit or a loss.

Unit Selling Price

The price a customer pays for one unit of a product or service.

Cost-volume-profit Chart

A graphical representation that shows the relationship between a company's costs, sales volume, and profit, used for planning and decision-making purposes.

Total Costs Line

Represents the aggregate of all costs (fixed and variable) associated with the production of goods or services, often illustrated graphically in cost-volume-profit analysis.